Friday Oct 26, 201205:48 PM GMT
Rising home prices force low-wage workers to leave major US cities: Harvard study
Fri Oct 26, 2012 5:48PM
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High housing prices decrease income mobility and ultimately hurt the U.S. economy, according to a new study by Daniel Shoag, associate professor of Public Policy at Harvard's Kennedy School, and his colleague Peter Ganong.


Sales of single-family homes in the U.S. rose by 5.7% in September, the highest rate since April 2010.


Most would argue that these numbers are indicative of an improving economy -- an increase in housing sales leads to an increase in housing prices. Shoag would argue the opposite.


"What higher housing prices have done," Shoag tells the Daily Ticker, "is they've taken half the country off of this income convergence track." Certain U.S. cities have "become prohibitively expensive for low-skilled workers and they've sort of become segregated places full of high-skilled workers. That's contributed to regional income inequality and played a part of the rising income inequality that we see."


Laborers are being priced out of cities like San Francisco and New York City, where housing prices are high, and migrating to smaller cities like Las Vegas and Phoenix where housing prices are cheaper. This has created a two-tier society: high-skill, high-wage workers living in large, metropolitan cities and low-skill, low-wage workers coalescing in economically depressed regions.  This phenomenon slows economic growth, Shoag argues, because one's total income impacts national GDP.


"San Francisco and Boston are rich places," he says, "but people aren't moving to those places anymore."


Since 1980 the rate of income convergence has been stagnant. The average income of U.S. workers has remained flat for the past 30 years and the migration of low-skilled workers across states has also slowed significantly.


This hasn't always been the case. Between 1880 and 1980 low-skilled workers moved to wealthier states and the average incomes between states converged by an average of 1.8% per year. The Daily Ticker


U.S. inequality is at its highest point for nearly a century. Those at the top are enjoying a larger share of the national pie while the number below the poverty level is growing. Concentrated wealth translates into political clout -- the power to use campaign contributions to rent politicians and tilt the rules of the economy in their favor.


In America today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.


According to a June report by the Organization for Economic Cooperation and Development, the U.S. has among the highest income inequality and relative poverty among the 34 countries that make up the consortium of developed countries.


The wealthiest 1 percent captured 93 percent of per-capita real income gains in 2010, according to an analysis of tax data by Emmanuel Saez, an economics professor at the University of California at Berkeley.


In 2010, 7 percent of all income gains went to the bottom 99 percent of Americans.



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